Bankruptcy per se is not necessarily the end of an enterprise, as several high-profile phoenixes rising from the ashes have shown.
However, unless you know exactly what you’re doing and can trust partners, stakeholders, and bankruptcy courts to let you do it, bankruptcy can end in tears.
For example, trustees or courts force the sales of assets, creditors have their hooks in too deep to be blocked, credit ratings never recover sufficiently for the business to turn a profit, or customers desert in droves, never to return.
Even if bankruptcy is a financial phenomenon (no money), business continuity managers should keep a lookout for factors of any kind that could lead to it.
Some of the common causes of bankruptcy include:
- External business factors like more aggressive competitors, price wars, and substitute solutions (for example, DVDs replacing video cassettes, and now in turn being replaced by streaming video).
- Internal business factors like poor management, wrong location, and inability to retain customers or key employees. Management and location are both factors whose business viability depends on many things, including the economy, competition, new technology, and so on. For example, a congenial, “hands-off” style of management may be inappropriate in a time of crisis for the enterprise.
- Financial issues including too high debt levels, cash flow interruption, fraud, and inability to raise new capital or compensate for loss of existing capital.
- Fiscal problems such as tax rate increases, disappearance of tax advantages on which a business depended.
- Accidents and their aftermath. Earthquakes and tsunamis are extreme examples, but any other accident that prevents operations and for which insurance compensation is non-existent or arrives too late can out paid to a business too.
Given this wide span of possibilities for sinking a company, a business continuity manager needs to have a correspondingly broad business culture.
That doesn’t mean trying to do the CFO’s or the sales director’s job, but it does mean at least knowing which warning signs to look for if problems loom in any of the above areas.